A new way forward for the economy

By Lee Wo-chiang 李沃牆 /

Sat, Jul 07, 2012 - Page 8

The color blue is often used to refer to depression. In economics, a blue flash on the economic indicator signifies a recession. The Council for Economic Planning and Development announced a few days ago that the nation’s monitoring indicator flashed blue for the seventh consecutive month, marking the fourth-longest such period in history. Another worrying development is that the economic growth rate is unlikely to reach the forecast 4 percent, with each new forecast lower than the last.

A wide range of negative predictions have been made.

On Thursday last week, the Polaris Research Institute updated its economic growth estimate for this year to 2.5 percent, a downward adjustment of 1.38 percentage points compared with its March forecast.

Taiwan’s economic growth is dependent on foreign trade, with total exports accounting for more than 60 percent of GDP.

The Ministry of Finance announced last month that in May exports totaled US$26 billion, 6.3 percent less than during the same period last year. For the first five months of this year, exports were worth a total of US$122 billion, a drop of 5 percent from the previous year. When compared with Japan, South Korea, Singapore, China and the US, Taiwan is the only country to register negative growth. The nation has posted negative export growth for the past three months.

Many financial experts have said the European sovereign-debt crisis will not be resolved in the short term. Europe is a major destination for Chinese exports and economic growth in China is slowing as a result of the crisis.

In addition, China is a major destination for Taiwan’s exports, with exports to China accounting for 40.3 percent of total exports last year.

However, it is going to be extremely difficult for Taiwan to increase its exports. With leading indicators increasing for the ninth consecutive month in May, officials believe the economy could gradually recover. As a result, they have projected economic growth for the second, third and fourth quarters of 0.77 percent, 4 percent and 6.65 percent respectively.

Unfortunately, the nation’s problems were not caused overnight and are far-reaching. Former vice president Vincent Siew (蕭萬長) was right when he said that apart from domestic and international economic factors, the main reason for domestic recession and falling competitiveness is the vicious spiral of internal strife and political inaction that defines Taiwanese politics.

For a long time now, the pan-blue and the pan-green camps have had narrow party interests. They have ignored Taiwan’s development and as a result, many believe the economy is treading water. The other members of the four Asian Tigers — Hong Kong, Singapore and South Korea — are gradually surpassing Taiwan and, if things continue, they will have left us in the dust a few years from now.

Faced with these internal and external problems, it will be very hard for the nation to increase its exports, eliminate the obstacles that are hampering trade and to substantially increase economic growth over the short term.

However, there are a number of things that can be done. When it comes to the economy, the focus should be the restoration of consumer confidence and increased private and public investment to spur domestic demand in the hope of promoting economic recovery. Increasing industrial competitiveness is also very important.

Even more crucial will be for the Chinese Nationalist Party (KMT) and Democratic Progressive Party to finally come together and cooperate to promote national economic development.

Lee Wo-chiang is a professor in Tamkan University’s Department of Banking and Finance.